Engineering
Let’s get technical with your tax incentives.
The United States often is at the forefront of innovation and development — in large part because of the knowledge and expertise of the skilled workforce in the engineering industry. These talented professionals produce and optimize infrastructure, products, efficiencies and workflows that keep businesses in other industries running smoothly.
The unforeseeable COVID-19 pandemic markedly affected the engineering industry, with projects delayed or canceled altogether and entire workplaces being shifted from on-premise to remote. Engineering businesses had to put planned innovations on hold while dealing with supply chain bottlenecks, a reduced workforce and rising expenses.
To financially aid these businesses and encourage them to keep their employees on the payroll during the pandemic, the U.S. government in March 2020 engineered and enacted a refundable payroll tax credit. Referred to as the Employee Retention Credit (ERC), it was part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act).
What does the ERC mean for your engineering business? That depends on your eligibility for the tax credit.
For example, your business may be eligible for the ERC if its operations were fully or partially suspended by governmental COVID-19 orders, thereby limiting commerce, travel or group meetings. Or, it might be eligible if it experienced a significant decline in gross receipts during 2020 or within the first three quarters of 2021. New startup businesses that began operations after February 15, 2020, may also qualify, regardless of revenue.
There are two main ways to be eligible for stimulus refunds:
- If your business matches the required decline in revenue within any quarter of 2020 or 2021.
- If you have W-2 employees.
Just how much can you receive through the Employee Retention Tax Credit? For 2020, the ERC is a credit against certain payroll taxes of 50 percent of the wages paid — up to $10k per employee — from March 12 – December 31, 2020 (capped at $5k per employee). For 2021, the ERC is a quarterly tax credit of 70 percent of the first $10,000 in wages per employee in each quarter of 2021 from January to September 2021 (capped at $7K per employee per quarter).
Government Orders
Example:
Wisconsin, March 24, 2020 – Governor Evers signed Executive Order #12 which directs all individuals present in the State of Wisconsin to stay at home or at their place of residence, except for specific outlined exceptions. All non-essential businesses and operations are required to cease, except for Minimum Basic operations, which are defined as the minimum necessary activities to maintain the value of the business’s inventory, preserve the condition of the business’s physical plant and equipment, ensure security, process payroll and employee benefits, and other related functions.
Essential Businesses and Operations are allowed to continue operations but must observe Social Distancing Requirements and, to the maximum extent possible, use technology to avoid meeting in person. Essential Businesses and Operations are defined according to the federal CISA guidance as well as additional businesses including grocery and medicine stores, child care services, and gas stations, among others.
Find More Government Orders Specific to Your State on Our Insights Page
Check out these FAQs to find out more about the Employee Retention Credit and best practices for applying for it:
What Benefits Does the Employee Retention Credit Offer for the Engineering Industry?
How Long Is the ERC Available?
For all four quarters in 2020, the deadline to apply is April 15, 2024. For all quarters in 2021, the deadline is April 15, 2025.
What Exactly Is “a Significant Decline in Gross Receipts” Under the Employee Retention Credit Program?
How Do I Know Which COVID-19 Governmental Orders Were Enacted in the State Where My Engineering Business is Located?
Is the Employee Retention Credit the Same as the Paycheck Protection Program (PPP)?
How Do I Apply for the Employee Retention Credit?
At StenTam, we’re innovators in tax services and other financial matters. Our skilled tax professionals are here to guide you through the ERC application and submission process. We’ll ensure you receive the maximum credit you’re owed. Contact us today to get started!
Qualifying orders (From IRS)
What kind of government orders qualify my business or organization for the ERC? (added July 28, 2023)
To qualify for ERC, you need to have been subject to a qualifying government order related to COVID-19 that caused a full or partial suspension of your trade or business operations. The government order may be at the local, state, or federal level.
Examples of governmental orders:
- An order from the city’s mayor stating that all non-essential businesses must close for a specified time period;
- A state’s emergency proclamation that residents must shelter in place for a specified period, except for essential workers;
- An order from a local official imposing a curfew on residents that impacts the operating hours of your trade or business for a specified time period;
- An order from a local health department mandating a workplace closure for cleaning and disinfecting.
Can I rely on a recommendation, bulletin or statement issued by a government authority to qualify for ERC? (added July 28, 2023)
No. To qualify for the ERC, you must have been subject to a government order that fully or partially suspended your trade or business.
Recommendations or statements encouraging you to take certain actions are not orders.
If you use a third party to calculate or claim your ERC, you should ask them to give you a copy of the government orders – not a generic narrative about an order. Read the order carefully and make sure it applied to your business or organization.
Is being subject to a government order enough to make me eligible for ERC? (added July 28, 2023)
No. You need to demonstrate that the government order was related to COVID-19 and that it resulted in your trade or business being fully or partially suspended.
What does it mean to be fully or partially suspended? (added July 28, 2023)
Whether your business or organization was fully or partially suspended depends on your specific situation. For examples, see Notice 2021-20, Part III, Section D.
Some examples of who doesn’t qualify under this eligibility factor:
- If all your employees were able to telework during the pandemic and your business continued to operate, your business wasn’t suspended.
- If your customers were affected by a stay-at-home order, but no orders applied to your business operations, you weren’t suspended.
- If you voluntarily closed your business or reduced hours of operation, you weren’t ordered to suspend.
You could still qualify for ERC based on a decline in gross receipts even if you don’t qualify under suspension of operations due to government order.
Was my business or organization fully or partially suspended if I had a supply chain issue? (added July 28, 2023)
A supply chain issue, by itself, does not qualify you for the ERC.
The IRS provided a narrow, limited exception if an employer was not fully or partially suspended but their supplier was. However, it applied only when the employer absolutely could not operate without the supplier’s product and the supplier was fully or partially suspended themselves.
In addition to having the supplier’s governmental order, you will need to show that:
- The government order caused the supplier to suspend operations,
- You couldn’t obtain the supplier’s goods or materials elsewhere (regardless of cost), and
- It caused a full or partial suspension of your business operations.
Client Case Study
An Atlanta-based transportation planning and traffic engineering consulting firm struggled as local and federal orders caused many of their clients to partially or fully shutdown. The Employee Retention Tax Credit...
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